Advantages of a limited Company

What are the advantages of setting up a limited company?

As a sole-trader or contractor you’ll have asked yourself how you can achieve a better return and pay less tax. The answer is simple: Form a limited company.

Why is a limited company better than working as a sole trader or through an umbrella company?

Setting up a limited company is easier than you think it is, in fact you can do it in a day, and we can even do it for you. True, a limited company requires that you do a bit more admin, but we can help you with that and so there’s no excuse.

Is working through an umbrella company less hassle?

Working as a sole trader or through an umbrella company may be a bit less hassle in terms of paperwork and admin (although expenses receipts can still be a real bind), but both are a sinful alternative to a limited company in terms of tax planning.

How to earn more through a limited company

Your monthly return as a limited company can be as much as 85%. As a limited company if, say, you make £50,000 profit you would pay yourself a small salary (below £10,000) and then take the rest as dividends, which would mean you’ll pay rather a lot less tax than what you’d pay as self-employed. But it’s when you start earning enough to enter the higher-rate tax threshold that the tax savings become really significant.

Other advantages to a limited company

As a limited company you can allow your spouse or civil partner to share in the company’s profits, meaning even greater tax savings for you and your family. Another advantage is that you are likely to be taken more seriously as a limited company, which may both earn you more clients and help if you’re seeking finance. One other advantage relates to risk; as a limited company any risk is the company’s and you are no longer personally liable.

It all adds up, so what should you do now?

Check that you fall outside IR 35 "disguised employment" legislation by downloading the IR35 checklist and make a decision in any case to commit to taking out tax investigation insurance to fully protect yourself. Now request a personal illustration that we’ll return to you with further details on the benefits of becoming a limited company tailored to your circumstances.

Also See: Pros and cons of a limited company and sole trader

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.